DAILY CURRENT AFFAIRS: 21 February 2025

Minimum Support Price (MSP)

Context: Samyukta Kisan Morcha (non-political) leader Jagjit Singh Dallewal’s hunger strike has reached its 43rd day, prompting farmers to announce a nationwide tractor march on January 26 to oppose the Central government. Their demands include a guaranteed MSP, debt relief, pensions, a freeze on electricity tariff hikes, withdrawal of police cases, and justice for the victims of the 2021 Lakhimpur Kheri violence.

What is MSP?

The Minimum Support Price (MSP) for a commodity is the rate at which the government commits to buying farmers’ produce if market prices drop below this level.

Historical Background

The concept of MSP was introduced in India during the 1960s, a period marked by severe food scarcity. The country faced significant challenges in food security, which were exacerbated by dependency on food imports, notably from the United States under the PL-480 program. This situation highlighted the need for a robust domestic agricultural policy to ensure food self-sufficiency.

The introduction of MSP was part of a broader strategy to encourage the adoption of high-yielding varieties of crops, particularly wheat and rice, as part of the Green Revolution. This initiative aimed to boost agricultural productivity and stabilize the food supply in India. The MSP was initially set as a floor price to incentivize farmers to adopt these new, riskier crop varieties by providing them with a safety net against price volatility.

Process of Awarding MSP

1. Recommendations by CACP

• The Minimum Support Price (MSP) is determined based on the suggestions of the Commission for Agricultural Costs and Prices (CACP).
• The CACP submits Price Policy Reports annually to the government, evaluating factors like:
• Cost of production.
• Demand and supply dynamics.
• Market price trends.
• Inter-crop price parity.

2. Final Decision by CCEA

• The Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister, makes the final decision on MSP levels.
• The decision is based on:
• The Price Policy Report.
• Feedback from state governments.
• The overall demand-supply scenario in the country.

3. Procurement by FCI

• The Food Corporation of India (FCI) serves as the nodal agency for procurement, supported by state agencies.
• The process begins at the start of the sowing season.

MSP Calculation

1. Types of Production Costs

The Commission for Agricultural Costs & Prices (CACP) calculates three types of production costs for each crop at both state and all-India average levels:

• A2: Covers all paid-out costs incurred by farmers in cash or kind, including:
• Seeds, fertilizers, and pesticides.
• Hired labor and leased-in land.
• Fuel and irrigation expenses.
• A2+FL:Includes A2 costs along with the estimated value of unpaid family labor.
• C2: A comprehensive cost, which includes:
• A2+FL costs.
• Imputed rental value of owned land.
• Interest on fixed capital and rent paid for leased-in land.

2. Government’s MSP Formula

• The government sets the Minimum Support Price (MSP) at a level of at least 1.5 times the all-India weighted average Cost of Production (CoP).
• However, this calculation is based on 1.5 times the A2+FL cost, not the comprehensive C2 cost.

Benefits of MSP Guarantee Law

1. Ensures Financial Stability

• A legally guaranteed MSP would provide fixed remuneration to farmers, safeguarding them against price instability in the market.
• Agriculture contributes about 16-18% to India’s GDP, but nearly 58% of the population depends on it for livelihood, making price stability crucial.

2. Provides Risk Protection

• Legal MSP would offer protection against risks like:
• Climate change, which causes an estimated 15-18% yield loss annually in India.
• Pest attacks, which affect around 30% of crops globally.
• Crop diseases, which can reduce production significantly.

3. Encourages Crop Diversification

• MSP law would encourage farmers to grow less water-intensive crops, such as pulses and millets, instead of water-intensive crops like rice, wheat, and sugarcane.
• Rice and sugarcane alone consume 80-90% of irrigation water, while millets require 70% less water than rice.

4. Establishes a Market Baseline

• MSP serves as a price signal to the market, ensuring merchants offer competitive prices.
• It prevents market prices from dropping drastically below MSP.
• The MSP for wheat in 2023-24 was set at ₹2,275 per quintal, an increase of ₹150 compared to the previous year, protecting farmers from low market prices.

5. Boosts Rural Economy

• MSP can inject financial resources into the rural economy, addressing economic distress exacerbated by demonetisation and COVID-19.
• Around 70% of rural households depend primarily on agriculture for livelihood.
• Increased MSP can boost farmers’ disposable income, stimulating rural consumption and economic growth.

Issues with the Current MSP Mechanism

Non-Enforcement of MSP:

• Market prices for many crops fall below MSP (e.g., moong, jowar, and soybeans), causing significant losses for farmers.
• The government’s announcements often lack concrete measures for implementation.

Structural Inefficiencies:

• MSP benefits are largely confined to a few crops and regions.
• Current mechanisms fail to protect farmers from price fluctuations effectively.

Farmers’ Plight:

• Income losses due to sub-MSP prices undermine farmer livelihoods.
• Dependence on intermediaries and lack of storage capacity exacerbate their vulnerability.

Arguments Against MSP Guarantee Law

Government of India’s Approach to Supporting Farmers

Income Support Approach

The government has favored income support models over direct price support. Examples include:

• PM-Kisan Samman Nidhi (Centre’s initiative).
• Rythu Bandhu (Telangana’s initiative).

Schemes Not Violating WTO Principles

The government has implemented several schemes that support farmers without violating WTO subsidy principles:

• PM-KISAN:Provides supplementary income transfers to farmers.
• Pradhan Mantri Fasal Bima Yojna (PMFBY):Offers crop insurance for risk coverage.
• Pradhan Mantri Krishi Sinchai Yojana (PMKSY):Ensures better irrigation access.
• Agri Infrastructure Fund (AIF): Aimed at creating agriculture infrastructure, with a funding size of ₹1,00,000 crore.
• Kisan Credit Cards (KCC): Provides production loans to dairy, fishery farmers, and those growing agricultural crops.

Way Forward

• Development of Agricultural Infrastructure:The government should focus on building modern agricultural infrastructure like cold storage facilities to support farmers’ direct participation in the market, reducing reliance on MSPs.
• Introduction of Market Intervention Schemes:A Market Intervention Scheme could be introduced, enabling the government to procure perishable commodities like vegetables, ensuring farmers receive a minimum assured price for their produce.
• Implementation of Price Deficiency Payment Schemes: NITI Aayog and the Economic Survey recommend Price Deficiency Payment (PDP) schemes, where the government compensates farmers for the difference between market prices and MSPs. Models such as Madhya Pradesh’s Bhavantar Bhugtan Yojana and Haryana’s Bhavantar Bharapai Yojana can be expanded as a Central Sector Scheme.
• Gradual Inclusion of More Crops in MSP Scheme:The government should gradually increase the number of crops eligible for MSP support, encouraging crop diversification and offering farmers more choices to match market demand.
• Strengthening Farmer Producers Organizations (FPOs):Providing adequate financial support to FPOs would enhance farmers’ price realization and market access. The success of AMUL in agriculture should be replicated through FPOs to ensure better outcomes for farmers.

Conclusion: The agricultural sector has encountered various challenges over time, highlighting the urgent need for a legal guarantee for MSP to tackle this crisis. Despite reaching an agreement with protesting farmers, the Central Government has not implemented any decisive measures in the past two years. The government should have acted quickly to address the demand for a legal guarantee for MSP and other concerns to shift the country’s focus from food security to nutrition security.

Yarlung Tsangpo Project

Context: China’s 60 GW mega-dam project on the Brahmaputra River in Tibet has raised concerns about its geopolitical, ecological, and socio-economic impacts on downstream countries like India, Bhutan, and Bangladesh. The project, part of China’s effort to assert control over the Brahmaputra basin, is likely to affect water security and regional relations in the transboundary river system.

About Yarlung Tsangpo Project

• World’s Largest Hydropower Project:The Yarlung Tsangpo project, located at the Great Bend in Medog county, Tibet, aims to become the world’s largest hydropower project. It is situated where the river turns sharply before entering Arunachal Pradesh.
• Part of China’s 14th Five-Year Plan: The project is a key element of China’s 14th Five-Year Plan (2021-2025).
• Strategic Site: The project’s location has been chosen for its ideal conditions for hydroelectric power generation, including a steep descent of the river from the mountains.
• Advanced Planning Stage: Activities such as funding allocation, construction of smaller dams, and upstream land use changes indicate that the project is in an advanced planning phase with visible construction expected soon.
• Energy Transition:China plans to reduce reliance on conventional energy sources and aims for net carbon neutrality by 2060 through projects like the Yarlung Tsangpo dam.
• Optimal Hydro Power Generation:The river’s steep gradient provides ideal conditions for hydroelectric power generation.

In 2006, China and India set up the Expert Level Mechanism (ELM) to tackle issues related to trans-boundary rivers. As part of this arrangement, China shares hydrological data with India on the Brahmaputra and Sutlej rivers during flood seasons. Additionally, India is constructing a hydropower dam on the Brahmaputra in Arunachal Pradesh.